Fixed capacity in the supply chain remains stable

Some supply chain analysts contend that the demands for fixed and variable capacity are reaching a balance.

According to FTR Associates Partner Noel Perry, fixed capacity—roads and highways, railways, and facilities—peaked five years ago and absolute usage of fixed capacity is below the previous high.

Perry shared his observations at last week’s Council of Supply Chain Professionals Annual Conference in Philadelphia.

As defined by Perry, variable capacity comprises drivers and tractors for crews and locomotives. He observed that this changes fluidly, citing the recent economic downturn when railroads, motor carriers and air cargo operators made significant personnel reductions.

Perry noted that LTL trailers are down 15 percent since the previous peak, with similar reductions occurring for tractors and drivers.

“When the economy expands, it is very difficult to hire drivers,” said Perry. “If you are an executive that has just been stung by the worst recession in recent history, you are not going to gamble on hiring drivers and buying tractors before your business expands and your margins go up. Every upturn in this industry lags behind the economy as freight goes up.”

During the previous recession, Perry said the trucking industry was about 190,000 drivers short at the peak of the driver shortage and now that number is down to roughly 125,000, because the economy is not expanding as rapidly.

And while the driver shortage is not as severe as it was in 2004, it is bad enough to cause the current pricing volatility.

What’s more, this shortage is in the process of being made worse by various safety agendas from the DOT’s Federal Motor Carrier Safety Administration, including CSA and proposed Hours-of-Service changes that he said are sure to remove capacity.

“It looks like—depending on what comes out of Washington—the additional shortage caused by changes in regulations will peak at around 300,000 drivers,” said Perry. “This would make the total shortage equal to 2004. It will feel like 2004 by the end of next year, but the difference between 2004 and 2012-to-2014 is that there are more regulations spread out over a longer period of time.”

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